SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  ------------

                                 Amendment No. 1
                                  FORM 10-KSB/A
          (Mark one)

          [X] Annual report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended July 31, 1997

                                       OR

          [ ]  Transition  report  under  Section 13 or 15(d) of the  Securities
Exchange Act of 1934 for the transition period from -------- to --------

                           Commission File No. 0-22367

                            HEALTHCARE CAPITAL CORP.
                 (Name of small business issuer in its charter)

              Alberta, Canada                       Not Applicable
    (State or other jurisdiction of                 (I.R.S. employer
      incorporation or organization)                 identification no.)

    111 S.W. Fifth Avenue, Suite 2390
           Portland, Oregon                         97204
    (Address of principal executive offices)        (Zip code)

                                 (503) 225-9152
                (Issuer's telephone number, including area code)

       Securities registered under Section 12(b) of the Exchange Act: None
         Securities registered under Section 12(g) of the Exchange Act:

                   Common Shares, without nominal or par value

          Check  whether  the issuer:  (1) has filed all reports  required to be
filed by Section 13 or 15(d) of the  Securities  Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports),  and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No ----

          Check if there is no disclosure of delinquent  filers pursuant to Item
405 of Regulation S-B contained herein, and no disclosure will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

          State  the  issuer's   revenues  for  its  most  recent  fiscal  year:
$13,462,000.

          State the aggregate  market value of the voting and non-voting  common
equity held by  non-affiliates  of the registrant,  computed by reference to the
price at which the common equity was sold, or the average bid and asked price of
such common equity, as of October 1, 1997: $24,088,027.

          State the number of shares outstanding of each of the issuer's classes
of common  equity:  Common  Shares,  without  nominal or par  value,  27,259,517
shares, as of October 20, 1997.

          Transitional Small Business Disclosure Format:  Yes-----    No  [X]   

                      Documents Incorporated by Reference:

          Portions of the  issuer's  Management  Information  Circular and Proxy
Statement dated October 29, 1997, are incorporated by reference into Part III of
this Form 10-KSB.


<PAGE>

ITEM 7. FINANCIAL STATEMENTS


              REPORT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS



TO THE BOARD OF DIRECTORS
HEALTHCARE CAPITAL CORP.:


         We  have  audited  the  accompanying   consolidated  balance  sheet  of
HealthCare  Capital Corp. and  subsidiaries as of July 31, 1997, and the related
consolidated statements of operations,  shareholders' equity, and cash flows for
the  year  then  ended.   These  consolidated   financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

         We conducted our audit in accordance with generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
HealthCare  Capital  Corp.  and  subsidiaries  as of  July  31,  1997,  and  the
consolidated  results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.




                                        /s/ KPMG Peat Marwick LLP



Portland, Oregon
October 24, 1997


                                       1
<PAGE>


                                AUDITORS' REPORT



To the Shareholders of
HealthCare Capital Corp.

We have audited the consolidated  balance sheet of HealthCare  Capital Corp. and
subsidiaries  as of July 31, 1996, and the related  statements of operations and
retained earnings  (deficit),  cash flows and shareholders'  equity for the year
then ended.  These consolidated  financial  statements are the responsibility of
the company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform an audit to obtain  reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the results of the  consolidated  financial
position of HealthCare  Capital Corp. and  subsidiaries as of July 31, 1996, and
the consolidated results of their operations,  and their cash flows for the year
then ended in  accordance  with  generally  accepted  accounting  principles  as
adopted in the United States of America.



                                        /s/ Shikaze Ralston
                                            Chartered Accountants

Vancouver, Canada
October 24, 1996


                                       2
<PAGE>


                            HEALTHCARE CAPITAL CORP.
                           CONSOLIDATED BALANCE SHEET
                        (in thousands, except share data)

                                                           July 31,
                                                             1997
                                                         -----------

                                     ASSETS
Current assets:
   Cash and cash equivalents                                 $ 1,099
   Accounts receivable, net of allowance
     for doubtful accounts and contractual
     write downs of $361                                       2,514
   Other receivables                                             314
   Inventory                                                     425
   Prepaid expenses                                              260
                                                             -------
            Total current assets                               4,612
Property and equipment, net                                    2,277
Other assets                                                     136
Goodwill and covenants not to compete, net                     9,519
                                                             -------
                                                             $16,544
                                                             =======

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Bank loans and short-term notes payable                   $    59
   Accounts payable and accrued liabilities                    3,395
   Convertible notes payable                                   2,600
   Capital lease obligation, current portion                     101
   Long term debt, current portion                               357
                                                             -------
            Total current liabilities                          6,512
Capital lease obligation, non-current portion                    305
Long term debt, non-current portion                              765
Convertible notes payable                                        127
                                                             -------
            Total liabilities                                  7,709

Commitments and contingencies

Shareholders' equity:
   Common stock, no par value per share,
     unlimited number of shares authorized,
     27,138,288 shares issued and outstanding                 11,131
   Notes receivable from shareholders                           (124)
   Accumulated deficit                                        (2,117)
   Treasury stock, 19,800 shares at cost                         (33)
   Cumulative translation adjustment                             (22)
                                                             -------
            Total shareholders' equity                         8,835
                                                             -------
                                                             $16,544
                                                             =======


          See accompanying notes to consolidated financial statements.


                                       3
<PAGE>


                            HEALTHCARE CAPITAL CORP.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)


                                       Years ended July 31,
                                      -----------------------
                                        1997           1996
                                      --------        -------
Net revenues                          $13,462         $ 2,389
                                      -------         -------

Costs and expenses:
  Cost of products sold                 5,010           1,017
  Clinical expenses                     5,985           1,197
  General and administrative expenses   3,410             639
  Depreciation and amortization           790             125
                                      -------         -------
Total costs and expenses               15,195           2,978
                                      -------         -------
Loss from operations                   (1,733)           (589)

Other income (expense):
  Interest income                          76               8
  Interest expense                        (47)              -
  Other, net                                3               -
                                      -------         -------
Net loss                              $(1,701)        $  (581)
                                      =======         =======

Weighted average outstanding shares    20,049          10,598
                                      =======         =======
Net loss per share                    $ (0.08)        $ (0.05)
                                      =======         =======


          See accompanying notes to consolidated financial statements.


                                       4
<PAGE>


                            HEALTHCARE CAPITAL CORP.
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                 Shareholder             Cumulative                  Total
                                       Common      Notes    Accumulated  Translation Treasury    Shareholders'
                                       Stock     Receivable    Deficit   Adjustment    Stock         Equity
                                    ----------  ------------ ---------- ------------ ---------- -------------
<S>                                 <C>            <C>       <C>         <C>         <C>           <C>   
BALANCE AT JULY 31, 1995            $     175      $   --    $    165    $     (2)   $     --      $  338

   Issuance of 3,000,000 shares of
    common stock under private
    placement (net proceeds)              416          --          --          --          --         416
   Exercise of stock options for
    600,000 shares of common              102          --          --          --          --         102
    stock
   Issuance of 872,000 shares of
    common stock upon conversion
    of Company's promissory note          160          --          --          --          --         160
   Issuance of 1,905,748 shares of
    common stock under private
    placement (net proceeds)            1,072          --          --          --          --       1,072
   Translation adjustment                  --          --          --           5          --           5
   Net loss                                --          --        (581)         --          --        (581)
                                      -------     -------     -------     -------     -------     -------
BALANCE AT JULY 31, 1996                1,925          --        (416)          3          --       1,512

   Issuance of 112,800 shares of
    common stock in connection
    with receipt of tax credit             38          --          --          --          --          38
   Exercise of stock options for
    775,000 shares of
    common stock                          316        (124)         --          --          --         192
   Issuance of 2,939,380 shares of
    common stock in connection
    with acquisitions                   3,291          --          --          --          --       3,291
   Issuance of 5,467,410 shares of
    common stock under private
    placement (net proceeds)            5,529          --          --          --          --       5,529
   Exercise of warrants for
    35,750 shares of common                32          --          --          --          --          32
    stock
   Repurchase of 19,800 shares of
    treasury stock                         --          --          --          --         (33)        (33)
   Translation adjustment                  --          --          --         (25)         --         (25)
   Net loss                                --          --      (1,701)         --          --      (1,701)
                                      -------     -------     -------     -------     -------     -------
BALANCE AT JULY 31, 1997            $  11,131     $  (124)    $(2,117)    $   (22)    $   (33)    $ 8,835
                                      =======     =======     =======     =======     =======     =======
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       5
<PAGE>


                            HEALTHCARE CAPITAL CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                              Years ended July 31,
                                                                           ---------------------------
                                                                             1997               1996
                                                                           ---------            ------
Cash flows from operating activities:
<S>                                                                        <C>                  <C>
    Net loss                                                               $(1,701)             $ (581)
    Adjustments  to  reconcile  net  loss to net  cash
    provided  by  (used  in) operating activities:
       Provision for bad debt expense                                           47                  --
       Depreciation and amortization                                           790                 125
    Changes in non-cash working capital:
       Accounts receivable                                                  (2,158)                 (7)
       Other receivables                                                      (314)                 --
       Inventory                                                              (281)                (16)
       Prepaid expenses                                                       (219)                (25)
       Income taxes recoverable                                                  9                  14
       Accounts payable and accrued liabilities                              2,932                  45
       Deferred purchase discounts                                              --                 (23)
                                                                           -------              ------
          Net cash used in operating activities                               (895)               (468)
                                                                           -------              ------  
Cash flows from investing activities:
    Purchase of property and equipment                                      (1,941)               (293)
    Deferred acquisition costs, net                                            132                (268)
    Net cash paid on business acquisitions                                  (3,389)               (238)
                                                                           -------              ------
          Net cash used in investing activities                             (5,198)               (799)
                                                                           -------              ------
Cash flows from financing activities:
    Net proceeds (repayments) of long term debt
       and capital lease obligations                                         1,382                (101)
    Deferred financing costs, net                                               42                 (42)
    Advances (repayments) of bank loans and short-term notes payable            26                 (75)
    Advances from (repayments to) shareholders                                (124)               (235)
    Issuance (redemption) of convertible notes                                  --                 (33)
    Issuance of common stock for cash,
       net of costs                                                          5,915               1,750
    Acquisition of treasury stock                                              (33)                 --
                                                                           -------              ------
          Net cash provided by financing activities                          7,208               1,264
                                                                           -------              ------
Net increase (decrease) in cash and cash equivalents                         1,115                  (3)

Effect on cash and cash equivalents of changes in foreign translation rate     (27)                 (2)
Cash and cash equivalents at the beginning of the year                          11                  16
                                                                           -------              ------
Cash and cash equivalents at the end of the year                           $ 1,099              $   11
                                                                           =======              ======

Required supplemental disclosures:
    Interest paid during year                                              $    41               $  14
    Non-cash financing activities:
       Issuance of long-term debt in acquisitions                          $ 1,025               $ 206
       Issuance of convertible notes in acquisitions                       $ 2,600               $  --
       Issuance of common stock in acquisitions                            $ 3,291               $  --

</TABLE>


     See accompanying notes to consolidated financial statements.


                                       6
<PAGE>


                            HEALTHCARE CAPITAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 1997

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Description of Company
         ----------------------

         HealthCare  Capital Corp. doing business as Sonus (the  "Company"),  an
Alberta,  Canada  corporation,   through  its  primary  operating  subsidiaries,
Sonus-Canada  Ltd.  (formerly HC HealthCare  Hearing  Clinics  Ltd.),  a British
Columbia,  Canada corporation,  and Sonus-USA, Inc. (formerly HealthCare Hearing
Clinics, Inc.), a Washington corporation,  currently owns and operates a network
of 52 hearing care clinics in the United States and Western Canada.  The clinics
are located primarily in the metropolitan areas of Los Angeles,  California; San
Diego,  California;  Chicago,  Illinois;  Lansing,  Michigan;  Albuquerque,  New
Mexico; Vancouver, British Columbia; and Calgary, Alberta. Each of the Company's
hearing care clinics provides its hearing impaired patients with a full range of
audiological products and services. The Company intends to expand its network of
hearing  care  clinics by  acquiring  clinics in its  existing,  as well as new,
geographic markets.

         Principles of Consolidation
         ---------------------------

         The  consolidated  financial  statements  include the Company's  wholly
owned subsidiaries.  All significant intercompany accounts have been eliminated.
The  functional  currency of all of the  Company's  Canadian  operations  is the
Canadian dollar while the functional  currency of the Company's U.S.  operations
is the U.S.  dollar.  In  accordance  with  Statement  of  Financial  Accounting
Standards  No.  52,  "Foreign  Currency  Translation",  assets  and  liabilities
recorded in Canadian  dollars are  remeasured  at current  rates in existence on
July 31,  1997.  Exchange  gains and  losses  from  remeasurement  of assets and
liabilities  recorded in Canadian  dollars are treated as  unrealized  gains and
losses and reported as a separate component of stockholders' equity.

         Revenue Recognition
         -------------------

         Revenues from the sale of hearing instrument products are recognized at
the time of delivery.  Revenues  from the  provision of hearing care  diagnostic
services are recognized at the time that such services are performed. As of July
31, 1997 and 1996, net revenues consisted of the following (in thousands):

                                                 1997              1996
                                                 ----              ----

         Product revenue                      $  11,627          $   2,345
         Service revenue                          1,835                 44
                                              ---------          ---------
                                              $  13,462          $   2,389
                                              =========          =========

         Income Taxes
         ------------

         The Company  accounts  for income  taxes under the asset and  liability
method.  Under  the  asset  and  liability  method,   deferred  tax  assets  and
liabilities  are  recognized  for the future tax  consequences  attributable  to
differences  between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards.  Deferred tax assets and  liabilities  are measured using enacted
tax rates  expected  to apply to  taxable  income  in the  years in which  those
temporary  differences  are expected to be  recovered or settled.  The effect on
deferred tax


                                       7
<PAGE>


                            HEALTHCARE CAPITAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 1997

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

assets and  liabilities  of a change in tax rates is recognized in income in the
period that includes the enactment date.

         Cash and Cash Equivalents
         -------------------------

         Cash equivalents consist of short-term,  highly liquid investments with
original maturities of 90 days or less.

         Inventory
         ---------

         Inventories  are stated at the lower of cost  (first in,  first out) or
net realizable value.

         Property and Equipment
         ----------------------

         Property and equipment are recorded at cost and depreciated as follows:

         Professional equipment       20% declining balance
         Office equipment             30% declining balance
         Automotive equipment         30% declining balance
         Leasehold improvements       Straight line over five years
         Computer equipment           30% declining balance

         In the year of acquisition,  depreciation is calculated at one-half the
above noted rates. Property and equipment purchased under capitalized leases are
amortized over the shorter of the lease term or their estimated  useful life and
such depreciation is included with depreciation expense.  Property and equipment
at July 31, 1997 consists of the following (in thousands):

         Professional equipment                           $     930
         Office equipment                                       481
         Automotive equipment                                    16
         Leasehold improvements                                 405
         Computer equipment                                   1,144
                                                          ---------
                                                              2,976
         Less accumulated depreciation                         (699)
                                                          ---------
                                                          $   2,277
                                                          =========

         Advertising Expenses
         --------------------

         The Company defers its  advertising  costs until the  advertisement  is
actually run, at which time the full expense is recognized. Deferred advertising
costs  were  $89,000  and $0 for  the  years  ended  July  31,  1997  and  1996,
respectively.  Advertising expense was $786,000 and $207,000 for the years ended
July 31, 1997 and 1996, respectively.


                                       8
<PAGE>


                            HEALTHCARE CAPITAL CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  JULY 31, 1997

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Goodwill and Covenants not to Compete
         -------------------------------------

         The  unallocated  purchase  costs in excess of the net assets  acquired
(goodwill)  is being  amortized on the  straight-line  basis over twenty  years.
Non-compete agreements are amortized on the straight-line basis upon termination
of the contracted employee for any reason. Goodwill and covenants not to compete
as of July 31, 1997 are as follows (in thousands):

         Goodwill                                         $   8,966
         Covenants not to compete                               955
         Less:  accumulated amortization                       (402)
                                                          ---------
                                                          $   9,519
                                                          =========

         The Company  assesses the  recoverability  of this intangible  asset by
determining  whether the amortization of the goodwill balance over its remaining
life can be  recovered  through  discounted  projected  future cash flows of the
acquired  businesses  from which the  goodwill  arose.  Amortization  charged to
operations  was $364,000 and $17,000 for the years ended July 31, 1997 and 1996,
respectively.

         Deferred Acquisition and Financing Costs
         ----------------------------------------

         Costs  related to the  acquisition  of clinics are deferred  and,  upon
successful completion of acquisitions,  are allocated to the assets acquired and
are  subject  to the  accounting  policies  outlined  above.  Costs  related  to
potential  acquisitions  that are  unsuccessful  are  expensed in the periods in
which it is determined  that such  acquisitions  are unlikely to be consummated.
Costs  related  to issuing  shares are  deferred  and upon the  issuance  of the
related shares, are applied to reduce the net proceeds of the issue.

         Earnings Per Share
         ------------------

         Earnings  per share is based on the weighted  average  number of common
shares  outstanding  in each period.  Common share  equivalents  represented  by
convertible debt and contingent  shares held in escrow have not been included in
the calculation of earnings per share as the effect would be anti-dilutive.

         Concentrations of Credit Risk
         -----------------------------

         Financial  instruments,   which  potentially  subject  the  Company  to
concentration of credit risk, consist principally of cash and trade receivables.
The Company  places its cash with high credit  quality  institutions.  At times,
such amounts may be in excess of the FDIC insurance limits.  The Company's trade
accounts  receivable  are  derived  from  numerous  private  payers,   insurance
carriers,    health   maintenance   organizations   and   government   agencies.
Concentration  of credit risk relating to trade  accounts  receivable is limited
due to the diversity and number of patients and payers.

         Fair Value of Financial Instruments
         -----------------------------------

         The  carrying  value  of  financial  instruments  such as cash and cash
equivalents,  trade  receivables,  notes  receivable,  trade  payables and notes
payable, approximate their fair value.


                                       9
<PAGE>


                            HEALTHCARE CAPITAL CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  JULY 31, 1997

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Use of Estimates
         ----------------

         Management   of  the  Company  has  made  a  number  of  estimates  and
assumptions  relating  to the  reporting  of  assets  and  liabilities  and  the
disclosure  of contingent  assets and  liabilities  to prepare  these  financial
statements in conformity with generally accepted accounting  principles.  Actual
results could differ from those estimates.

         Reclassifications
         -----------------

         Certain amounts in the 1996 financial statements have been reclassified
in order to conform to the 1997 presentation.

NOTE 2.  ACQUISITIONS

         During the fiscal year ended July 31,  1997,  the Company  purchased 39
hearing care clinics based in the United States in 12 separate transactions.  In
each transaction,  the acquisitions were accounted for as purchase transactions.
The acquired assets and liabilities were recorded at their estimated fair values
at the date of acquisition, and the unallocated excess purchase price (goodwill)
is being  amortized  on a  straight  line basis  over 20 years.  Purchase  price
adjustments  may arise in the event working capital on the closing date deviates
from  the  minimum  working  capital  requirement   specified  in  the  purchase
agreement.  The operating  results of each acquired clinic have been included in
the consolidated statements of operations from each respective acquisition date.

        Certain  acquisitions  have been structured  using the Company's  common
shares or debt  convertible into the Company's common shares as a portion of the
consideration of the  transaction.  The valuation of the Company's common shares
given in  consideration  is based on the market  price for a  reasonable  period
before and after the date the terms of an acquisition  are agreed to,  announced
and approved by regulatory authorities.

         Santa Maria Hearing Associates
         ------------------------------

        On August 1, 1996,  Sonus-USA,  Inc. acquired for cash certain assets of
Santa Maria Hearing  Associates at a cost of $50,000.  The seller entered into a
three year covenant not to compete with  Sonus-USA,  Inc. for  consideration  of
$25,000 which was paid on January 5, 1997.

         Hearing Care Associates Group
         -----------------------------

         On October 1, 1996,  Sonus-USA,  Inc.  completed  the merger of Hearing
Care Associates -Northridge, Inc., Hearing Care Associates - Glendora, Inc., and
Hearing Care Associates - Glendale,  Inc.  (collectively "HCA") through a merger
of these HCA  corporations at a cost of $2,704,260.  As  consideration  for this
merger,  the Company paid cash of $314,724 and issued 2,389,536 common shares of
the Company at a price of $1.00 per share.  For cash  consideration  of $314,724
paid on closing plus $36,137 paid on November 1, 1996, the sellers  entered into
covenants  not to compete for a period of three  years  after  their  employment
terminates.


                                       10
<PAGE>


                            HEALTHCARE CAPITAL CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  JULY 31, 1997

NOTE 2.  ACQUISITIONS (CONTINUED)

         Hearing Health Services, Inc.
         -----------------------------

         On October 31, 1996, Sonus-USA, Inc. purchased substantially all of the
assets of the Midwest  Division of Hearing  Health  Services,  Inc. at a cost of
$2,960,000.  Consideration  for this  acquisition  was in the form of a  secured
$2,600,000  convertible  note payable due October 31, 1997 and  assumption  of a
$360,000 note payable.  The former note is  convertible  into  2,000,000  common
shares of the Company at a rate of $1.30 per share.

         Hearing Dynamics
         ----------------

         On December 6, 1996,  Sonus-USA,  Inc.  merged  with  Hearing  Dynamics
("HD"),  a California  corporation.  The merger of HD into  Sonus-USA,  Inc. was
consummated  as a tax-free  merger  whereby  common  shares of the Company  were
exchanged for all the issued and outstanding shares of HD at a cost of $804,360.
Consideration for this acquisition was $102,600 cash paid on closing and 408,000
common  shares of the Company  issued at a price of $1.72 per share.  A total of
118,000  shares  are  subject  to  restrictions   on  sale  or  transfer.   Such
restrictions will lapse as to one-third of such shares on November 30 in each of
1997,  1998,  and 1999. In addition,  80,000 of the shares are being held by the
Company  (the  "Contingent  Shares").  If for any of the three  years  ending on
November  30,  1997,  1998 or 1999,  the  income of HD before  interest,  taxes,
depreciation and amortization  and after a corporate  overhead  allocation falls
below 20% of the net  revenues  of the  business  for such year,  the seller may
elect to pay the Company $1.00 or cancel one Contingent  Share for each $1.00 of
shortfall.  A  Contingent  Share is also  required  to be  canceled  or a dollar
retained for each $1.72 of long-term  liabilities of the business as of the date
of closing of the acquisition and for each $1.72 of net accounts receivable that
remains  uncollected  after a specified time period.  For cash  consideration of
$25,000 paid on closing, the seller entered into a covenant not to compete for a
period of one year after employment terminates.

         FHC, Inc.
         ---------

         On December 17, 1996,  Sonus-USA,  Inc. acquired all of the outstanding
shares  of  FHC,  Inc.,  a  New  Mexico  corporation,  at a  cost  of  $400,000.
Consideration  for this  acquisition  was  $250,000  cash paid on closing  and a
three-year promissory note of $150,000 bearing interest at 6 1/2% per annum. For
consideration  of $112,233  payable over a three-year  period,  the sellers also
entered into  covenants not to compete for a period of three years from the date
of closing.

         Hearing Care Associates - Los Angeles, Inc.
         -------------------------------------------

         On January 9, 1997,  Sonus-USA,  Inc.  purchased all of the outstanding
shares of Hearing Care Associates - Los Angeles, Inc. for total consideration of
$301,000. For cash consideration of $112,500, the sellers entered into covenants
not to compete for a period of three years after employment terminates.

         Hearing Care Associates - Arcadia, Inc.
         ---------------------------------------

         On February 28, 1997, Sonus-USA,  Inc. purchased all of the outstanding
shares of Hearing  Care  Associates - Arcadia,  Inc. at a cost of $410,338  cash
paid on closing.  For cash  consideration of $130,170,  the sellers entered into
covenants  not  to  compete  for  a  period  of  three  years  after  employment
terminates.


                                       11
<PAGE>


                            HEALTHCARE CAPITAL CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  JULY 31, 1997

NOTE 2.  ACQUISITIONS (CONTINUED)

         Hearing Care Associates - Sherman Oaks, Inc.
         --------------------------------------------

         On March 6, 1997,  Sonus-USA,  Inc.  purchased  all of the  outstanding
shares of Hearing Care Associates - Sherman Oaks, Inc. at a cost of $26,568 cash
paid on closing.  For cash  consideration  of $33,783,  the sellers entered into
covenants  not  to  compete  for  a  period  of  three  years  after  employment
terminates.

         Auditory Vestibular Center, Inc.
         --------------------------------

         On March 14, 1997,  Sonus-USA,  Inc.  purchased all of the  outstanding
shares of Auditory  Vestibular Center,  Inc. for total consideration of $84,306.
For cash  consideration  of $28,580,  the sellers  entered into covenants not to
compete for a period of three years after employment terminates.

         Hearing Care Associates - Lancaster, Inc.
         -----------------------------------------

         On April 8, 1997,  Sonus-USA,  Inc.  purchased  all of the  outstanding
shares of Hearing Care Associates - Lancaster,  Inc. for total  consideration of
$136,751.  For cash consideration of $61,877, the sellers entered into covenants
not to compete for a period of three years after employment terminates.

         Hearing Improvement Center, Inc.
         --------------------------------

         On June 6,  1997,  Sonus-USA,  Inc.  purchased  all of the  outstanding
shares of Hearing  Improvement  Center,  Inc. for consideration of $500,000 cash
paid on closing, 141,844 common shares of the Company issued at a price of $1.41
per share,  a two-year  promissory  note in the  amount of  $132,624  payable in
quarterly  installments  including  interest  at 6% per annum  and a  three-year
promissory note in the amount of $282,036 with accrued  interest at a rate of 6%
per annum  payable  at the end of the first  year and the  balance  of the note,
including  interest,  payable in equal monthly  installments  over the remaining
term. For cash consideration of $50,000,  the sellers entered into covenants not
to compete for a period of three years after employment terminates.

         Dakota Hearing Aid Service
         --------------------------

         On July 8, 1997,  Sonus-USA,  Inc.  acquired for cash certain assets of
Dakota  Hearing  Aid  Service at a cost of $40,000.  The seller  entered  into a
three-year  covenant not to compete with Sonus-USA,  Inc. for cash consideration
of $10,000.

NOTE 3.  FINANCING ARRANGEMENTS

         Bank Loan
         ---------

         Sonus-Canada  Ltd.  maintains  a revolving  bank  demand  loan  bearing
interest at the bank's  prime rate plus 1% per annum  (5.75% at July 31,  1997),
secured by a general  security  agreement  covering  all assets of  Sonus-Canada
Ltd.,  the  postponement  of claim by the  shareholders  and the  guarantee of a
shareholder.  The loan provides for a maximum credit limit of $182,000.  At July
31, 1997, no amounts were outstanding under the loan.


                                       12
<PAGE>


                            HEALTHCARE CAPITAL CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  JULY 31, 1997

NOTE 3.  FINANCING ARRANGEMENTS (CONTINUED)

         Line of Credit
         --------------

         In July 1997,  Sonus-USA,  Inc. obtained a $500,000 line of credit from
Phonak, Inc., a hearing instrument  manufacturer.  The line of credit is secured
by a portion of  Sonus-USA,  Inc.'s  accounts  receivable,  is guaranteed by the
Company,  and bears interest at the prime rate on a fully floating  basis.  Debt
service is interest only,  payable monthly until July 16, 1998, when all amounts
outstanding  under the line of credit will be due. At July 31, 1997,  no amounts
were outstanding under the line of credit.

         Short-term Notes Payable
         ------------------------

         Sonus-USA,  Inc. and  Sonus-Canada  Ltd. have entered into  short-term,
non-interest  bearing notes with certain hearing instrument  manufacturers.  The
outstanding balance of the notes as of July 31, 1997 was $59,000.

NOTE 4.  LONG-TERM DEBT

         Long-term debt consists of the following at July 31, 1997 (in thousands
except for installment amounts):

         Secured  bank loan payable in  installments  of $726 per
         month plus  interest  calculated  at the bank prime rate
         plus 1-1/2% per annum                                         $      7

         Equipment  loan  from  a  supplier.  The  loan  requires
         fifty-two equal  installments every four weeks of $2,124
         including  interest  calculated  at the  rate of 10% per
         annum                                                               75

         Unsecured note payable in annual installments of $50,000
         plus interest calculated at 6.5% per annum,  maturing on
         December 17, 1999                                                  150

         Unsecured,   non-interest   bearing   note   payable  in
         quarterly  installments of $9,352,  maturing on December
         31, 1999                                                            94

         Equipment loans from suppliers,  with maturities ranging
         from  October,  1999  to  December,   2018  and  monthly
         payments, including interest at rates ranging from 0% to
         9% per annum aggregating $3,165                                     82

         Unsecured note payable in monthly installments of $1,357
         including  interest  calculated  at the  rate  of 8% per
         annum, maturing on February 1, 1999                                 23

         Note  payable  requiring  monthly  installments  of $351
         including interest calculated at 18% per annum, maturing
         on April 15, 2002                                                   13

         Note payable  requiring  payment of accrued  interest of
         $17,395  on  June  6,  1998,  and  monthly  installments
         thereafter of $12,500 including  interest  calculated at
         6% per annum  compounded  monthly,  maturing  on June 6,
         2000                                                               282

         Note payable requiring quarterly installments of $17,716
         including interest calculated at 6% per annum,  maturing
         on June 6, 1999                                                    133

         Secured note payable requiring  monthly  installments of
         $1,000  including  interest  calculated at 6% per annum,
         maturing February 1, 1999                                           23


                                       13
<PAGE>


                            HEALTHCARE CAPITAL CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  JULY 31, 1997

NOTE 4.  LONG-TERM DEBT (CONTINUED)

         Note payable  requiring annual  installments of $120,000
         plus interest  calculated  at 6% per annum,  maturing on
         July 1, 1999

                                                                            240
                                                                    -----------
                                                                          1,122
         Less current portion
                                                                           (357)
                                                                    -----------
                                                                    $       765
                                                                    ===========

         The maturities of long-term debt are as follows (in thousands):  1998 -
$357; 1999 - $459; 2000 - $237; 2001 - $11; 2002 - $4; thereafter $54.

NOTE 5.  CAPITAL LEASES

         The following is a schedule by year of future  minimum  lease  payments
under  capital  leases  together with the present value of the net minimum lease
payments as of July 31, 1997 (in thousands):

         1998                                                       $       132
         1999                                                               127
         2000                                                               126
         2001                                                                88
                                                                   ------------
         Total minimum lease payments                                       473
         Less:  amount representing interest                                (67)
                                                                   ------------
         Present value of minimum lease payments                            406
         Less current portion                                              (101)
                                                                   ------------
                                                                   $        305
                                                                   ============

         Total assets under capitalized  leases at July 31, 1997, were $305,000,
net of accumulated depreciation of $131,000.

NOTE 6.  CONVERTIBLE NOTES PAYABLE

         Convertible notes payable consist of the following at July 31, 1997 (in
thousands except for per share amounts):

         Non-interest  bearing  note due on  demand;  convertible
         into common shares of the Company at a rate of $1.00 per
         share                                                     $        127

         Non-interest   bearing   note  due  October  31,   1997;
         convertible  into common shares of the Company at a rate
         of $1.30 per share                                               2,600
                                                                    -----------
                                                                    $     2,727
                                                                    ===========


                                       14
<PAGE>


                            HEALTHCARE CAPITAL CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  JULY 31, 1997

NOTE 7.  SHAREHOLDERS' EQUITY

         Common Stock
         ------------

         On February 28, 1996, the Company issued 1,700,000  special warrants at
a price of $0.74 for gross proceeds of $1,250,690. The special warrants provided
for the  conversion of each  February  special  warrant to 1.1 units.  Each unit
consisted  of one common  share and one share  purchase  warrant.  The  February
special  warrants were converted into common shares at no additional cost to the
holder on February 28, 1997. Each share purchase warrant represents the right to
purchase one common share at a price of $1.10 until  expiration  on February 28,
1998.

         A  private   placement  in  Canada  of  810,000  special  warrants  was
consummated  by the Company in  September  1996 and a private  placement  in the
United States of 4,149,000  special  warrants was  consummated by the Company in
December  1996.  Such  special  warrants  are  collectively  referred  to as the
September  special  warrants.  The  aggregate  offering  price for the September
special  warrants was  $1,012,500  for those sold in Canada and  $5,186,250  for
those sold in the United States.  Each of the September  special warrants placed
in Canada  entitled  the  holder to  receive  1.1  common  shares  and 1.1 share
purchase warrants,  with each such warrant exercisable for one common share at a
price of $2.00 per share.  Each of the September  special warrants placed in the
United  States  entitled the holder  thereof to receive one common share and one
share  purchase  warrant to purchase an  additional  common  share for $2.00 per
share.

         In connection  with the offering of the September  special  warrants in
Canada,  the Company's  placement  agent (the Canadian Agent) received a selling
commission  consisting of $48,625 in cash and 34,000 September  special warrants
exercisable  for one common share and one share purchase  warrant to purchase an
additional common share for $2.00 per share and was granted an option to acquire
81,000 share purchase warrants, each exercisable for one common share at a price
of $1.25 per share.  The Canadian Agent also received a $61,987  syndication fee
and a $37,097 corporate finance fee.

         In connection with the placement of the September  special  warrants in
the United  States,  the Company's two placement  agents (the U.S.  Agents) each
received a selling  commission  equal to 9 percent of the gross  proceeds in the
form of September  special  warrants,  or a total of 373,410  September  special
warrants. One of the U.S. Agents also received 20,000 September special warrants
in payment of its corporate  finance fee. Such  September  special  warrants are
exercisable  for one common share and a share  purchase  warrant to purchase one
additional  common  share for $2.00 per  share.  In  addition,  the U.S.  Agents
received  an option to acquire  214,900  and 200,000  share  purchase  warrants,
respectively,  with each warrant  exercisable for one common share at a price of
$1.25 per share.  All of the share  purchase  warrants  issued in  September  or
December of 1996 are subject to certain  rights of the Company to force exercise
or cancellation.

         A total of 5,250,000 outstanding shares were held in escrow at July 31,
1997. All such shares are registered in the shareholders'  respective names with
all  voting  rights  attached  and  exercisable  by  the  respective  registered
shareholder.  The escrowed  shares are  restricted  as to  transferability.  The
release of 1,000,000 shares was subject to lapse of time provisions;  the shares
were released on October 21, 1997. The release of the remaining 4,250,000 shares
is subject to the following provisions:

        o   One  share  will be  released  for  each  $0.08  of  cash  flow
            generated by the Company;

        o   Release shall only be made pursuant to a written application to
            The Alberta Stock Exchange; and


                                       15
<PAGE>


                            HEALTHCARE CAPITAL CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  JULY 31, 1997

NOTE 7.  SHAREHOLDERS' EQUITY (CONTINUED)

        o   The  maximum  number of shares to be  released in any year to a
            shareholder shall be one-third of the original number of shares
            held in escrow on behalf of such shareholder.

         Stock Option Plans
         ------------------

         The Company has two stock  option  plans,  the Stock Option Plan ("1993
Plan") and the Stock Award Plan ("1996 Plan")  pursuant to which the Company may
grant  to  officers,   directors,   employees  and  consultants   incentive  and
non-qualified  options to purchase up to 10% of the  outstanding  common  shares
under the 1993  Plan and up to  3,000,000  common  shares  under the 1996  Plan,
subject to applicable regulatory limits. The 1996 Plan is subject to shareholder
approval at the Company's  1997 annual  meeting.  The exercise  price of options
granted under the plans may not be less than 75% of the fair market value of the
Company's common shares at the date of grant (100% for  tax-qualified  incentive
stock  options).  Options  become  exercisable  at the date of grant or in equal
annual  installments  over a period of one to four years from the date of grant.
The options generally expire five years after the date of grant.

      The 1996 Plan also provides for the granting of stock appreciation rights,
restricted units,  performance awards and other stock-based  awards. The Company
had no such awards or rights outstanding at July 31, 1997 or 1996.

The activity during the years ended July 31, 1997 and 1996 was as follows:

                                   1997                        1996
                         --------------------------  --------------------------
                                        Weighted-                   Weighted-
                                         Average                     Average
                          Options       Exercise       Options       Exercise
                                         Price                        Price
                         ----------   ------------   ---------      ----------
Outstanding - beginning  1,700,000           $0.83     450,000           $0.28
of year
     Granted             1,842,000           $1.37   1,850,000           $0.79
     Exercised            (775,000)          $0.41    (600,000)          $0.17
     Canceled             (325,000)          $1.50           -           $   -
                         ---------    ------------   ---------      ----------
Outstanding - end of     2,442,000           $1.28   1,700,000           $0.83
year                     ==========   =============  =========      ==========
Exercisable at end of      887,500           $1.19
year
Weighted-average fair
value of options granted
during the year                              $0.89                       $1.23


                                       16
<PAGE>


                            HEALTHCARE CAPITAL CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  JULY 31, 1997

NOTE 7.  SHAREHOLDERS' EQUITY (CONTINUED)

The following table summarizes  information  about stock options  outstanding at
July 31, 1997:

                        Options Outstanding              Options Exercisable
               --------------------------------------  -------------------------
                              Weighted-
                  Number       Average    Weighted-      Number      Weighted -
  Range of     Outstanding    Remaining    Average     Exercisable    Average
  Exercise        as of       Contractual  Exercise       as of       Exercise
   Prices     July 31, 1997      Life       Price     July 31, 1997     Price
-------------- -------------  ----------- -----------  ------------  -----------
  $0.05 -- $0.20     50,000         2.66       $0.18        50,000        $0.18
  $0.25 -- $0.30    300,000         3.39       $0.28       300,000        $0.28
  $0.70 -- $0.75    125,000         3.55       $0.72        87,500        $0.72
  $1.10 -- $1.15    250,000         4.77       $1.12           -          $  -
  $1.25 -- $1.35    600,000         4.18       $1.30           -          $  -
  $1.40 -- $1.50    667,000         4.49       $1.46           -          $  -
  $1.95 -- $2.10    450,000         3.57       $2.00       450,000        $2.00
----------------- ---------   ----------  ----------   -----------   -----------

  $0.05 -- $2.10  2,442,000         4.05       $1.28       887,500        $1.19
                  =========                                =======

         The  Company  accounts  for  stock  option  grants in  accordance  with
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees." Accordingly,  no compensation cost has been recognized for its stock
option grants. Pro forma information  regarding net income (loss) and net income
(loss) per share is required under Statement of Financial  Accounting  Standards
No. 123,  "Accounting  for Stock-Based  Compensation"  ("SFAS 123") and has been
determined  as if the Company had  accounted  for all 1997 and 1996 stock option
grants based on the fair value method. The pro forma information presented below
is not  representative  of the effect  stock  options will have on pro forma net
income (loss) or net income (loss) per share for future years.

      The fair  value of each  option  grant is  estimated  on the date of grant
using the Black-Scholes  multiple  option-pricing  model. The following weighted
average  assumptions were used for grants in 1997 and 1996:  risk-free  interest
rates of 5.94% and 6.43%,  respectively,  an expected  option life of 4.92 years
and 4.24 years,  respectively,  expected volatility of 96% and dividend yield of
zero.

      The Black-Scholes  method is one of many models used to calculate the fair
value of options that are freely tradable,  fully  transferable and that have no
vesting restrictions.  These models also require highly subjective  assumptions,
including future stock price volatility and expected time until exercise,  which
greatly affect the calculated values.


                                       17
<PAGE>


                            HEALTHCARE CAPITAL CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  JULY 31, 1997

NOTE 7.  SHAREHOLDERS' EQUITY (CONTINUED)

         Had compensation cost for these plans been determined based on the fair
value of awards at the grant date,  as  prescribed  by SFAS 123, net loss or net
loss per share would have been as follows:

                                                         1997      1996
                                                       --------  --------
                                                       (in thousands, except
                                                          per share data)
      Net loss applicable to common shareholders:
         As reported                                  $(1,701)    $(581)
         Pro forma (1)                                $(2,121)  $(1,172)
      Net loss per share:
         As reported                                   $(0.08)   $(0.05)
         Pro forma (1)                                 $(0.11)   $(0.11)

--------------------------
(1) SFAS 123 applies to awards granted in fiscal years that begin after December
    15, 1994. Consequently,  the effects of applying SFAS 123 shown here are not
    likely  to be  representative  of the  effects  in  future  years due to the
    exclusion  of awards  granted  in prior  years but  vesting  (and  therefore
    expensed) in 1996 and 1997.

NOTE 8.  INCOME TAXES

         HealthCare  Capital Corp. and its Canadian  subsidiaries  file separate
corporate income tax returns on a stand-alone basis in Canada.  Sonus-USA,  Inc.
files separate corporate income tax returns in the United States.

         There was no  provision  for income  taxes for the years ended July 31,
1997 and 1996 as the Company incurred net operating losses.

         The components of temporary  differences  that give rise to significant
portions of deferred  income  taxes at July 31, 1997 and 1996 are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                1997               1996
                                                                ----               ----
<S>                                                        <C>                 <C>     
   
         Deferred tax assets:
         Net operating losses carried forward              $     839           $    344
         Allowance for doubtful accounts                          44                 --
         Other                                                    --                 24
                                                           ---------           --------
                                                                 883                368
         Deferred tax liabilities:
         Goodwill and start-up costs                             (54)                --
         Other                                                    --                (21)
                                                           ---------           --------
                                                                 829                347
         Less valuation allowance                               (829)              (347)
                                                           ---------          ---------
                                                          $       --         $       --
                                                          ==========         ==========
</TABLE>
    


                                       18
<PAGE>


                            HEALTHCARE CAPITAL CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  JULY 31, 1997


         A  reconciliation  of the  Company's  expected  tax  expense  using the
statutory income tax rate to the actual effective rate is as follows:

                                                           1997         1996
                                                           ----         ----

         Tax benefit at statutory rate                      (34)%       (34)%
         Adjustment for higher Canadian tax rate             --         (11)
         Capitalized costs deducted for tax purposes         --          (6)
         Expenses not deductible for tax purposes             5          10
         Change in valuation allowance                       29          41
                                                             --          --
         Tax rate per financial statements                   --%         --%
                                                            ====        ====

         At July 31,  1997,  the  Company had  approximate  net  operating  loss
carryforwards for tax purposes which, if not utilized, expire in the years ended
as follows (in thousands):

                                                   UNITED
                               CANADA              STATES                TOTAL
                               ------              ------                -----

         2001            $         18           $      --            $      18
         2002                      35                  --                   35
         2003                     711                  --                  711
         2004                      45                  --                   45
         2011                      --                 303                  303
         2012                      --                 906                  906
                          -----------           ---------            ---------
                          $       809           $   1,209            $   2,018
                          ===========           =========            =========

NOTE 9.  RELATED PARTY TRANSACTIONS

         William DeJong is a partner in the Calgary,  Alberta law firm of Ballem
MacInnes  and is a  director  of the  Company.  Total  fees,  disbursements  and
government  sales tax paid to Ballem  MacInnes by the Company for legal services
as of July 31, 1997 and 1996 were $168,000 and $37,000,  respectively (converted
from Canadian dollars at July 31, 1997 and 1996).

      In  connection  with the  acquisition  of the Midwest  Division of Hearing
Health Services, Inc., Sonus-USA,  Inc. assumed a promissory note with a balance
of $360,000 payable to Kathy Foltner, an officer of the Company.  The promissory
note is payable in equal annual installments of $120,000 beginning July 1, 1997,
and bears interest at 6% per annum.

      Gregory J. Frazer,  Ph.D.,  an officer and director of the Company,  was a
shareholder in certain  Hearing Care Associates  corporations  which the Company
acquired during the year ended July 31, 1997.  Total  consideration  paid to Mr.
Frazer  and  his  wife  in  connection   with  the   acquisitions   and  related
noncompetition  agreements  totaled $933,000 in cash and 1,470,359 common shares
of the Company at a price of $1.00 per share.

      Brandon M.  Dawson,  an officer  and  director of the  Company,  exercised
options for 250,000  shares of Common Stock at $0.27 per share  (converted  from
Canadian dollars at May 8, 1997). In connection with such exercise,  the Company
loaned Mr. Dawson  $67,500 to pay the aggregate  exercise  price of the options.
The loan is secured by the stock  underlying  the  exercise  of the  options and
accrues  interest at 10% per annum.  Gene K.  Balzer,  Ph.D.,  a director of the
Company,  exercised  options  for  200,000  common  shares


                                       19
<PAGE>


                            HEALTHCARE CAPITAL CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  JULY 31, 1997

NOTE 9.  RELATED PARTY TRANSACTIONS (CONTINUED)

at $0.28 per  share  (converted  from  Canadian  dollars  at May 19,  1997).  In
connection with such exercise,  the Company loaned Mr. Balzer $56,000 to pay the
aggregate  exercise  price of the  options.  The loan is  secured  by the  stock
underlying the exercise of the options and accrues interest at 10% per annum.

NOTE 10.  401(K) PLAN

         The Company sponsors a 401(k) plan for all employees who have satisfied
minimum  service and age  requirements.  Employees  may  contribute up to 20% of
their   compensation   to  the  plan.   The  Company  does  not  match  employee
contributions.

NOTE 11.  COMMITMENTS AND CONTINGENCIES

         Operating Leases
         ----------------

         The following is a schedule by year of future  minimum  lease  payments
for non-cancelable operating leases at July 31, 1997 (in thousands):

         1998                                                  $   658
         1999                                                      531
         2000                                                      468
         2001                                                      229
         2002                                                      107
         Thereafter                                                146
                                                               -------
         Total minimum lease payments                          $ 2,139
                                                               =======

         Rental expense under operating leases was $810,000 and $208,000 for the
years ended July 31, 1997 and 1996, respectively.

         Insurance
         ---------

         In the normal course of business, the Company may become a defendant or
plaintiff in various lawsuits. Although a successful claim for which the Company
is not fully  insured could have a material  effect on the  Company's  financial
condition,  management  is of the opinion that it maintains  insurance at levels
sufficient to insure itself against the normal risk of operations.

NOTE 12.  SUBSEQUENT EVENTS

        On August 27, 1997,  Sonus-USA,  Inc.  purchased all of the  outstanding
shares of Hearing  Care  Associates - Santa  Monica,  Inc. at a cost of $258,268
cash paid on closing.  For cash  consideration of $114,135,  the sellers entered
into  covenants  not to compete  for a period of three  years  after  employment
terminates.

NOTE 13.  CANADIAN VERSUS U.S. GAAP

        As of July 31, 1997 and 1996, there were no material differences between
Canadian generally accepted accounting principles ("GAAP") and U.S. GAAP.


                                       20
<PAGE>


                            HEALTHCARE CAPITAL CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  JULY 31, 1997


NOTE 14.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

         The  following is a tabulation of the  unaudited  quarterly  results of
operations  for the year ended  July 31,  1997 (in  thousands,  except per share
data):

<TABLE>
<CAPTION>
                                                              Quarter ended
                                    ------------------------------------------------------------
                                      October             January         April           July
                                       1996                 1997           1997           1997
                                       ----                 ----           ----           ----

<S>                                  <C>                  <C>         <C>           <C>        
Net revenue                          $  1,268             $ 2,933     $    4,355    $     4,906
Operating loss                           (299)               (672)          (444)          (318)
Net loss                                 (298)               (649)          (432)          (322)

Earnings before interest,
   depreciation and amortization (1)     (247)               (454)          (251)             9

Net loss per share                   $  (0.02)            $ (0.03)   $     (0.02)   $     (0.01)

</TABLE>
-----------------
(1) Earnings before interest,  depreciation and amortization is provided because
    it is a measure commonly used by acquisition  companies.  It is presented to
    enhance an  understanding  of the  Company's  operating  results  and is not
    intended to represent cash flow or results of operations in accordance  with
    generally accepted accounting principles for the periods indicated.


                                       21
<PAGE>


PRO FORMA FINANCIAL INFORMATION

         The "HealthCare  Combined"  column set forth in the unaudited pro forma
condensed  combined  statement of  operations  for the year ended July 31, 1997,
assumes that the acquisition of the Hearing Care Associates  Group on October 1,
1996, and the  acquisition of the Midwest  Division of Hearing Health  Services,
Inc. on October 31, 1996 (the  "Acquisitions"),  had occurred on August 1, 1996.
The  unaudited  pro forma  combined  financial  information  includes all of the
operations of the 25 clinics acquired in the Acquisitions.

         The unaudited pro forma condensed  combined  financial  information set
forth below is not necessarily  indicative of the Company's  combined  financial
position or the results of operations  that actually  would have occurred if the
transactions had been  consummated on such dates. In addition,  such information
is not intended to be a projection of results of operations that may be obtained
by the  Company  in the  future.  The  unaudited  pro forma  combined  financial
information  should  be read in  conjunction  with  the  Company's  consolidated
financial  statements  and related  notes  thereto  included  elsewhere  in this
report.

         UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
                        FOR THE YEAR ENDED JULY 31, 1997

<TABLE>
<CAPTION>
                                                    ACQUIRED    PRO FORMA   HEALTHCARE
                                       HEALTHCARE  CLINICS(B)  ADJUSTMENTS   COMBINED
                                          (in thousands, except per share amounts)
<S>                                    <C>          <C>         <C>           <C>
Net revenues                           $ 13,462     $  1,565                  $ 15,027

Costs and expenses:
  Product cost of sales                   5,010          517                     5,527
  Operational expenses                    9,395        1,265    (c)  (276)      10,384
  Depreciation and                          790           53    (a)    52          895
                                       --------     --------     --------     --------
    amortization
    Total operating expenses             15,195        1,835         (224)      16,806
                                       --------     --------     --------     --------
    Loss from operations                 (1,733)        (270)         224       (1,779)
Other income                                 32            8            -           40
                                       --------     --------     --------     --------
Loss before income taxes                 (1,701)        (262)         224       (1,739)
Income tax expense                            -          (31)           -          (31)
                                       --------     --------     --------     --------
Net loss                               $ (1,701)    $   (231)    $    224     $ (1,708)
                                       ========     ========     ========     ========

Pro forma:
Net loss per common share                                                     $  (0.08)
                                                                              ========
Weighted average number of
  shares outstanding
                                                                                20,455
                                                                              ========
</TABLE>


                                       22
<PAGE>


           NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

(1)      BASIS OF PRESENTATION

         The "HealthCare  Combined"  column set forth in the unaudited pro forma
condensed  combined  statements of operations  for the year ended July 31, 1997,
gives effect to the Acquisitions as if such  transactions had occurred on August
1, 1996.

(2)      PRO FORMA ADJUSTMENTS

         (a)      To record amortization of goodwill for the Acquisitions in the
                  amount of $52,000 for the year ended July 31, 1997,  as if the
                  Acquisitions had occurred on August 1, 1996.

         (b)      Reflects the  historical  operations  of the acquired  clinics
                  prior to their acquisition by the Company.

         (c)      To record the elimination of non-recurring acquisition bonuses
                  in the  amount  of  $276,000  paid  to  certain  employees  of
                  acquired clinics immediately prior to the closing date.

ACQUISITIONS (FOR PERIODS FROM AUGUST 1, 1996 TO DATE OF ACQUISITION)

                             HEARING CARE MIDWEST DIVISION
                           AUGUST 1, 1996   AUGUST 1, 1996
                                  THROUGH          THROUGH
                            SEPTEMBER 30,      OCTOBER 31,
                                     1996            1996          TOTAL
                                     ----            ----          -----
                                            (in thousands)
STATEMENT OF
OPERATIONS DATA:
Net patient service revenues       $ 789              $ 776         $1,565

Costs and expenses:
  Product cost of sales              248                269            517
  Operational expenses               697                568          1,265
  Depreciation and amortization       20                 33             53
                                   -----              -----         ------
    Total operating expenses         965                870          1,835
                                   -----              -----         ------
    Loss from operations            (176)               (94)          (270)
Other income, net                      8                  -              8
                                   -----              -----         ------
Net loss before income taxes        (168)               (94)          (262)
Income tax benefit                     -                (31)           (31)
                                   -----              -----         ------
Net loss                           $(168)             $ (63)        $ (231)
                                   =====              =====         ======


                                       23
<PAGE>


                          INDEPENDENT AUDITORS' REPORT




To the Shareholders and Board of Directors
HealthCare Capital Corp.:


     We have audited the  accompanying  balance sheet of Hearing Care Associates
Group  as  of  July  31,  1996,  and  the  related   statements  of  operations,
stockholders' equity (deficit),  and cash flows for each of the years in the two
years then ended.  These  financial  statements  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audit.

     We conducted  our audit in  accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material  respects,  the  financial  position of Hearing Care  Associates
Group as of July 31, 1996,  and the results of its operations and its cash flows
for each of the  years in the two year  period  then  ended in  conformity  with
generally accepted accounting principles.




                                        /s/ KPMG Peat Marwick LLP

Portland, Oregon
February 14, 1997


                                       24
<PAGE>


                          HEARING CARE ASSOCIATES GROUP

                                  Balance Sheet

                                  July 31, 1996


                                                   ASSETS

Current assets:

<TABLE>
<CAPTION>
<S>                                                                                             <C>         
    Cash and cash equivalents                                                                   $    243,167
    Trade accounts receivable, net of allowance for doubtful accounts of $22,130                     711,028
    Related party receivable                                                                          97,372
    Prepaid expenses and other current assets                                                         22,013
                                                                                                 -----------
       Total current assets                                                                        1,073,580
Equipment and fixtures, net                                                                          209,717
Intangible assets, at cost, less accumulated amortization                                            163,387
Deferred taxes                                                                                        20,600
Other assets, net                                                                                      9,678
                                                                                                 -----------
       Total assets                                                                             $  1,476,962
                                                                                                 ===========

                                   LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
    Accounts payable                                                                            $    575,362
    Notes payable                                                                                    106,438
    Related party payable                                                                            437,512
    Accrued payroll and related costs                                                                141,175
    Other accrued expenses and current liabilities                                                   261,719
                                                                                                 -----------
       Total current liabilities                                                                   1,522,206

Stockholders' equity (deficit):
    Common stock; authorized 24,000 shares; issued and outstanding 2,600 shares                       70,000
    Accumulated deficit                                                                             (115,244)
                                                                                                 -----------
       Total stockholders' deficit                                                                   (45,244)
                                                                                                 -----------
                                                                                                $  1,476,962
                                                                                                ============
</TABLE>

                See accompanying notes to financial statements.


                                       25
<PAGE>


                          HEARING CARE ASSOCIATES GROUP

                            Statements of Operations

                       Years ended July 31, 1996 and 1995


<TABLE>
<CAPTION>
                                                     1996                    1995
                                                     ----                    ----
<S>                                             <C>                      <C>          
Product sales                                   $   3,480,056            $   2,740,612
Product cost of sales                               1,393,554                  659,941
                                                 ------------             ------------
                                                    2,086,502                2,080,671
Net patient service revenue                           673,115                  513,129
Expenses:
    Selling expenses                                2,949,340                2,147,185
    General and administrative expenses               320,763                  151,433
                                                 ------------             ------------
                                                    3,270,103                2,298,618
                                                 ------------             ------------
        (Loss) income from operations                (510,486)                 295,182
    Other income (expense) net                         11,727                   (9,817)
        (Loss) income before income taxes            (498,759)                 285,365
                                                -------------            -------------
    Income tax (benefit) expense                      (22,900)                 108,883
                                                -------------            -------------
        Net (loss) income                      $     (475,859)          $      176,482
                                                =============            =============
</TABLE>


                 See accompanying notes to financial statements.


                                       26
<PAGE>


                          HEARING CARE ASSOCIATES GROUP

                  Statements of Stockholders' Equity (Deficit)

                       Years ended July 31, 1996 and 1995




<TABLE>
<CAPTION>
                                                                                              Total
                                                                                           Stockholders'
                                        Common Stock                      Accumulated         Equity
                                           Shares          Par Value         Deficit        (Deficit)
                                           ------          ---------         -------        ---------

<S>                                    <C>              <C>              <C>               <C>         
Balances at July 31, 1994                      2,600    $      70,000    $      184,133    $    254,133
Net income                                         -                -           176,482         176,482
                                       -------------    -------------    --------------    ------------
Balances at July 31, 1995                      2,600           70,000          360,615          430,615
Net loss                                           -                -         (475,859)        (475,859)
                                       -------------    -------------    -------------     ------------
Balances at July 31, 1996                      2,600    $      70,000    $    (115,244)    $    (45,244)
                                       =============    =============    =============     ============
</TABLE>


                See accompanying notes to financial statements.


                                       27
<PAGE>


                          HEARING CARE ASSOCIATES GROUP
                            Statements of Cash Flows
                       Years ended July 31, 1996 and 1995


<TABLE>
<CAPTION>
                                                                                1996                    1995
                                                                                ----                    ----
<S>                                                                        <C>                      <C>          
Cash flows from operating activities:
    Net (loss) income                                                      $   (475,859)            $     176,482
    Adjustments to reconcile net (loss) income to
    net cash provided by (used in) operations:
        Depreciation and amortization                                            68,091                    61,422
        Deferred income taxes                                                    54,000                   (34,178)
        Changes in current assets and liabilities:
            Increase in accounts receivable                                    (147,794)                 (358,299)
            Decrease (increase) in notes receivable - related party              57,067                   (20,131)
            (Increase) decrease in prepaid
                expenses and other current assets                               (37,548)                   13,568
            Increase in accounts payable                                        173,483                    56,197
            Increase in accrued expenses and
                other current liabilities                                       223,671                    71,144
                                                                           ------------             -------------
                Net cash used in operating activities                           (84,889)                  (33,795)
                                                                           ------------             -------------
Cash flows from investing activities:
    Purchases of equipment and fixtures                                         (66,597)                  (17,313)
    Acquisition of intangible assets                                            (17,493)                   (3,245)
                                                                           ------------             -------------
                Net cash used in investing activities                           (84,090)                  (20,558)
                                                                           ------------             -------------
Cash flows from financing activities:
    Net proceeds from related parties                                           248,578                  255,095
    Repayments on notes payable                                                 (85,176)                 (71,800)
                                                                           ------------             ------------
                Net cash provided by financing activities                       163,402                  183,295
                                                                           ------------             ------------
                Net increase (decrease) in cash and
                   cash equivalents                                              (5,577)                 128,942
Cash and cash equivalents at beginning of year                                  248,744                  119,802
                                                                           ------------             ------------
Cash and cash equivalents at end of year                                   $    243,167             $    248,744
                                                                           ============             ============
Supplemental disclosures of cash flow information:
    Interest paid                                                          $     21,104             $     13,349
                                                                           ============             ============
    Income taxes paid                                                      $          0             $    143,061
                                                                           ============             ============
</TABLE>


                See accompanying notes to financial statements.


                                       28
<PAGE>


                          HEARING CARE ASSOCIATES GROUP

                          NOTES TO FINANCIAL STATEMENTS

                                  JULY 31, 1996


(1) ORGANIZATION AND OPERATIONS

    Hearing Care Associates  Group (the "Company")  consists of three California
    corporations:  Hearing Care  Associates  -  Northridge,  Inc.,  Hearing Care
    Associates - Glendale,  Inc., and Hearing Care  Associates - Glendora,  Inc.
    The Company  provides hearing  rehabilitation  services through a network of
    eleven clinics located in the Los Angeles, California, metropolitan area.

    The accompanying  financial  statements  reflect the combined  operations of
    these three corporations.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    (a) CASH AND CASH EQUIVALENTS

    For purposes of reporting cash flows, cash and cash equivalents include cash
    on hand and short-term  investments  with original  maturities of 90 days or
    less.

    (b) NET REVENUES

    Revenues from the sale of hearing instrument  products are recognized at the
    time of delivery.  Revenues  from the  provision of hearing care  diagnostic
    services are recognized at the time that such services are performed.

    (c) EQUIPMENT AND FIXTURES

    Equipment and fixtures are stated at cost less accumulated  depreciation and
    amortization. Additions and betterments are capitalized, and maintenance and
    repairs are charged to current  operations  as incurred.  The cost of assets
    retired or otherwise  disposed of and the related  accumulated  depreciation
    and amortization are removed from the accounts, and the gain or loss on such
    dispositions is reflected in current  operations.  Amortization of leasehold
    improvements is provided on an accelerated  basis over the term of the lease
    or estimated useful lives of the assets,  whichever is less. Depreciation is
    provided on an accelerated basis. Estimated useful lives of the assets are:

        Professional equipment                               7 - 10 years
        Furniture and fixtures                               7 - 10 years
        Office equipment                                      5 - 7 years
        Leasehold improvements                                    7 years

    (d) INCOME TAXES

    The Company accounts for income taxes under the asset and liability  method.
    Under the asset and liability  method,  deferred tax assets and  liabilities
    are recognized for the future tax  consequences  attributable to differences
    between the  financial  statement  carrying  amounts of existing  assets and
    liabilities and their respective tax bases and operating loss and tax credit
    carryforwards.  Deferred  tax  assets and  liabilities  are  measured  using
    enacted tax rates  expected to apply to taxable income in the years in which
    those  temporary  differences  are expected to be recovered or settled.  The
    effect on deferred  tax assets and  liabilities  of a change in tax rates is
    recognized in income in the period that includes the enactment date.


                                       29
<PAGE>


                          HEARING CARE ASSOCIATES GROUP

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                                 JULY 31, 1996

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

    (e) INTANGIBLE ASSETS

    Intangible  assets  consist of  non-compete  agreements,  purchased  patient
    listings  and  goodwill  (the  cost in excess of net  assets  acquired  in a
    purchase transaction).  Goodwill and patient listings are being amortized on
    a straight-line basis over 15 years. Non-compete agreements are amortized on
    a straight-line basis over the life of the contract.

    (f) CONCENTRATIONS OF CREDIT RISK

    Financial   instruments,   which   potentially   subject   the   Company  to
    concentration  of  credit  risk,  consist  principally  of  cash  and  trade
    receivables.   The  Company   places  its  cash  with  high  credit  quality
    institutions.  At times such amounts may be in excess of the FDIC  insurance
    limits.  The Company's  trade accounts  receivable are derived from numerous
    private payors,  insurance  carriers,  health maintenance  organizations and
    government agencies. Concentration of credit risk relating to trade accounts
    receivable  is  limited  due to the  diversity  and number of  patients  and
    payors.

    (g) FAIR VALUE OF FINANCIAL INSTRUMENTS

    The  carrying  value  of  financial   instruments  such  as  cash  and  cash
    equivalents,  trade receivables,  notes receivable, trade payables and notes
    payable, approximate their fair value.

    (h) USE OF ESTIMATES

    Management  of the Company has made a number of  estimates  and  assumptions
    relating to the reporting of assets and  liabilities  and the  disclosure of
    contingent  assets and liabilities to prepare these financial  statements in
    conformity with generally accepted accounting principles.
    Actual results could differ from those estimates.

(3) EQUIPMENT AND FIXTURES

    Equipment and fixtures consist of the following at July 31, 1996:

        Professional equipment                          $    254,431
        Office equipment                                     193,736
        Furniture and fixtures                               143,921
        Leasehold improvements                                76,627
                                                        ------------

                                                             668,715

        Less accumulated depreciation                        458,998
                                                        ------------

                                                        $    209,717
                                                        ============

    Depreciation  expense  for fiscal  1996 and 1995 was  $57,172  and  $49,236,
respectively.


                                       30
<PAGE>


                          HEARING CARE ASSOCIATES GROUP

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                                 JULY 31, 1996

(4) NOTES PAYABLE

         Equipment loans payable to supplier.  The loans are
         due April  15,  1998,  and  require  total  monthly
         installments   of   $2,000,    including   interest
         calculated at the rate of 9 percent per annum.              $   106,438
                                                                     ===========

(5) INCOME TAXES

    The components of the 1996 and 1995 provision (benefit) for income taxes are
    as follows:


                                              Year Ended July 31
                                       ------------------------------
                                            1996            1995
                                       -------------    -------------

         Current:
            Federal                    $     (76,900)   $     120,449
            State                                  0           22,612
                                       -------------    -------------
                                             (76,900)         143,061
                                       -------------    -------------
         Deferred:
            Federal                           45,465          (28,776)
            State                              8,535           (5,402)
                                       -------------    -------------
                                              54,000          (34,178)
                                       -------------    -------------
              Total                    $     (22,900)   $     108,883
                                       =============    =============


    At July 31, 1995,  the  difference  between the total income tax expense and
    the income tax expense computed using the statutory  federal income tax rate
    was due primarily to state tax expense,  net of federal tax benefit. At July
    31, 1996, the difference between the total income tax benefit and the income
    tax benefit  computed  using the statutory  federal  income tax rate was due
    primarily  to  state  tax  benefit,  net of  federal  effect,  as well as an
    increase in the valuation allowance.

    The net deferred tax asset of $20,600 at July 31, 1996,  consists  primarily
    of net operating loss  carryovers and  differences  resulting from using the
    cash method of accounting  for income tax purposes.  No valuation  allowance
    was  deemed  necessary  at July  31,  1995.  An  increase  in the  valuation
    allowance during the year resulted in a valuation allowance at July 31, 1996
    of approximately $156,000.

    At July 31, 1996,  the Company has a net  operating  loss  carryforward  for
    federal income tax purposes of approximately $274,000.


                                       31
<PAGE>


                          HEARING CARE ASSOCIATES GROUP

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                                 JULY 31, 1996


(6) OPERATING LEASES

       The Company leases offices and equipment  under  noncancelable  operating
       leases which require future minimum annual rentals as follows:

         Year ending July 31:
           1997                                 $     241,139
           1998                                       207,000
           1999                                       208,908
           2000                                       212,731
           2001                                       216,665
           Thereafter                                 376,956
                                                -------------
                                                $   1,463,399
                                                =============

       Certain of the leases  contain  renewal  options and  escalation  clauses
       which require  payments of additional  rent to the extent of increases in
       related  operating  costs.  Rent  expense  for  fiscal  1996 and 1995 was
       $208,868 and $236,293, respectively.

(7) RELATED PARTY TRANSACTIONS

       The Company  receives  advances to fund operations from  stockholders who
       are also employees and officers of the Company.  The balance due to these
       stockholders is $437,512 at July 31, 1996. Employees who are stockholders
       have also received periodic  advances from the Company.  The total amount
       due to the Company from these  employees is $97,372 at July 31, 1996, all
       of which is due within the next fiscal year.

(8) SUBSEQUENT EVENT

       As of October 1, 1996,  the Company was  acquired by  HealthCare  Hearing
       Clinics, Inc., a Washington corporation and a wholly-owned  subsidiary of
       HealthCare  Capital Corp., a corporation  organized under the laws of the
       province of Alberta, Canada.

       As of  September  30,  1996,  the  Company  declared  a bonus to a clinic
       manager  in the  amount  of  $236,000.  The bonus  was  payable  upon the
       completion  of the  acquisition  of the  Company  by  HealthCare  Hearing
       Clinics, Inc.


                                       32
<PAGE>


                          INDEPENDENT AUDITORS' REPORT




To the Shareholders and Board of Directors
HealthCare Capital Corp.:


We have  audited  the  accompanying  balance  sheet of the  Midwest  Division of
Hearing  Health  Services,  Inc. dba Sonus as of June 30, 1996,  and the related
statements of operations and accumulated earnings and cash flows for each of the
years  in  the  two  years  then  ended.  These  financial  statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of the Midwest Division of Hearing
Health  Services,  Inc.  dba Sonus as of June 30,  1996,  and the results of its
operations  and cash  flows  for each of the years in the two year  period  then
ended in conformity with generally accepted accounting principles.



                                       /s/ KPMG Peat Marwick LLP

Portland, Oregon
January 16, 1997


                                       33
<PAGE>


                         THE MIDWEST DIVISION OF HEARING

                         HEALTH SERVICES, INC. dba SONUS

                                 BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                             July 31,                October 31,
                                                                               1996                     1996
                                                                           -------------            -------------
                                                                                                     (Unaudited)
                                     ASSETS
Current Assets
<S>                                                                        <C>                      <C>          
    Cash and cash equivalents                                              $     139,396            $     108,240
    Trade accounts receivable, net of allowance
        for doubtful accounts of $57,297                                         313,614                  301,567
    Accounts receivable - other                                                      965                      512
    Inventory                                                                     62,619                   43,161
    Prepaid expenses and other current assets                                     11,049                   35,808
                                                                           -------------            -------------
            Total current assets                                                 527,643                  489,288
Equipment and fixtures, net                                                      389,523                  364,879
Deferred taxes                                                                    39,179                   39,179
Other assets, net                                                                 25,628                   24,212
                                                                           -------------            -------------
                                                                                 454,330                  428,270
                                                                           -------------            -------------
            Total assets                                                   $     981,973            $     917,558
                                                                           =============            =============


                        LIABILITIES AND RETAINED EARNINGS

Current liabilities:
    Accounts payable                                                       $     221,399            $     224,238
    Accrued payroll and related costs                                            127,164                  101,433
    Patient deposits                                                              23,927                   36,330
    Other accrued expenses                                                        23,538                   27,937
    Capital lease obligations                                                      8,875                    1,775
                                                                           -------------            -------------
            Total current liabilities                                            404,903                  391,713
Related party payable                                                            277,923                  279,126
                                                                           -------------            -------------
            Total liabilities                                                    682,826                  670,839
                                                                           -------------            -------------
Retained earnings                                                                299,147                  246,719
                                                                           -------------            -------------
            Total liabilities and retained earnings                        $     981,973            $     917,558
                                                                           =============            =============
</TABLE>


                See accompanying notes to financial statements.


                                       34
<PAGE>


                         THE MIDWEST DIVISION OF HEARING

                         HEALTH SERVICES, INC. dba SONUS

                STATEMENTS OF OPERATIONS AND ACCUMULATED EARNINGS




<TABLE>
<CAPTION>
                                                                                    Four Months
                                              Years Ended June 30                Ended October 31
                                       ------------------------------    ------------------------------
                                            1996            1995              1996             1995
                                       -------------    -------------    --------------    ------------
                                                                                    (Unaudited)

<S>                                    <C>              <C>              <C>               <C>         
Product sales                          $   2,983,955    $   2,878,986    $      930,926    $  1,147,596
Product cost of sales                        934,038        1,031,409           337,488         355,090
                                       -------------    -------------    --------------    ------------
                                           2,049,917        1,847,577           593,438         792,506
Net patient service revenue                  478,702          463,383           174,913         166,412

Expenses:
   Selling expenses                        1,981,736        1,827,201           709,106         687,539
   General and administrative
     expenses                                424,943          356,999           142,957         126,731
                                       -------------    -------------    --------------    ------------
                                           2,406,679        2,184,200           852,063         814,270
                                       -------------    -------------    --------------    ------------
     Income (loss) from operations           121,940          126,760          (83,712)         144,648
                                       -------------    -------------    -------------     ------------
   Interest income                             1,593                -               485               -
                                       -------------    -------------    --------------    ------------
                                               1,593                -               485               -
                                       -------------    -------------    --------------    ------------
     Net income (loss) before
        income taxes                         123,533          126,760          (83,227)         144,648
                                       -------------    -------------    -------------     ------------
Income tax expense (benefit)                  47,687           41,024          (30,799)          57,298
                                       -------------    -------------    -------------     ------------
Net income (loss)                             75,846           85,736          (52,428)          87,350
Accumulated earnings,
    beginning of period                      223,301          137,565           299,147         223,301
                                       -------------    -------------    --------------    ------------
Accumulated earnings, end of period    $     299,147    $     223,301    $      246,719    $    310,651
                                       =============    =============    ==============    ============
</TABLE>



                See accompanying notes to financial statements.


                                       35
<PAGE>


                         THE MIDWEST DIVISION OF HEARING

                         HEALTH SERVICES, INC. dba SONUS

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                              Four Months
                                                              Years Ended June 30           Ended October 31
                                                            -----------------------     -----------------------
                                                              1996           1995          1996          1995
                                                            ---------     ---------     ---------     ---------
                                                                                               (Unaudited)
Cash flows from operating activities:
<S>                                                         <C>           <C>           <C>           <C>      
   Net income (loss)                                        $  75,846     $  85,736     $ (52,428)    $  87,350
   Adjustments to reconcile net income
     (loss) to net cash provided by
     (used in) operations:
       Depreciation                                           108,430        90,677        41,200        16,218
       Deferred taxes                                         (13,471)        7,226             -             -
       Changes in current assets and liabilities:
       (Increase) decrease in accounts receivable             (18,170)     (199,543)       12,047        53,717
       Decrease (increase) in inventory                        49,179        (9,676)       19,458        46,672
       Decrease (increase) in prepaids and
         other assets                                          11,302       (27,126)      (22,890)        1,144
       (Decrease) increase in accounts payable                (80,598)       94,897         2,839      (117,433)
       Increase (decrease) in accrued liabilities              15,918        (2,906)      (25,731)       (3,536)
       (Decrease) increase in patient deposits                (20,926)       18,439        12,403         8,897
       (Decrease) increase in other liabilities                (1,037)       58,974       (26,400)       43,115
                                                            ---------     ---------     ---------     ---------

         Net cash provided by (used in)
           operating activities                               126,473       116,698       (39,502)      136,144
                                                            ---------     ---------     ---------     ---------

Cash flows from investing activities:
   Purchases of equipment and fixtures                       (103,853)     (202,904)      (16,556)      (41,243)
                                                            ---------     ---------     ---------     ---------

         Net cash used in investing activities               (103,853)     (202,904)      (16,556)      (41,243)
                                                            ---------     ---------     ---------     ---------

Cash flows from financing activities:
   Net payments on capital leases                             (24,556)            -        (7,100)      (10,356)
   Net (repayments to) proceeds from
     related parties                                           (6,188)      180,497        32,002       (19,799)
                                                            ---------     ---------     ---------     ---------

         Net cash (used in) provided by
           financing activities                               (30,744)      180,497        24,902       (30,155)
                                                            ---------     ---------     ---------     ---------
Net (decrease) increase in cash and
    cash equivalents                                           (8,124)       94,291       (31,156)       64,746
Cash and cash equivalents at
    beginning of period                                       147,520        53,229       139,396       147,520
Cash and cash equivalents at
   end of period                                            $ 139,396     $ 147,520     $ 108,240     $ 212,266
                                                            =========     =========     =========     =========
Supplemental disclosures of cash flow information:
     Interest paid                                          $   4,068     $  14,437     $     820     $   1,025
                                                            =========     =========     =========     =========
     Income taxes paid                                      $  61,158     $  33,798     $       0     $  57,298
                                                            =========     =========     =========     =========
Schedule of non cash investing and financing activities:
     Capital lease obligation                               $       -     $  33,431     $       -     $       -
                                                            =========     =========     =========     =========
</TABLE>

                 See accompanying notes to financial statements.


                                       36
<PAGE>


                         THE MIDWEST DIVISION OF HEARING

                         HEALTH SERVICES, INC. dba SONUS

                          NOTES TO FINANCIAL STATEMENTS


(1) ORGANIZATION AND OPERATIONS

     The  Midwest  Division  of Hearing  Health  Services,  Inc.  dba Sonus (the
     Company) consists of the Michigan and Illinois operations of Hearing Health
     Services,  Inc., a Delaware  corporation.  The Company provides diagnostic,
     rehabilitation  and preventative  hearing health care products and services
     to patients through 14 clinics located in Michigan and Illinois.

     The Michigan and  Illinois  operations  of Hearing  Health  Services,  Inc.
     operated under separate  management  independent  from other Hearing Health
     Services,  Inc., locations.  The accompanying  financial statements reflect
     all  significant  costs of operations  for the Midwest  Division of Hearing
     Health Services, Inc.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       (a)CASH AND CASH EQUIVALENTS

       For purposes of reporting cash flows,  cash and cash equivalents  include
       cash on-hand and short-term  investments  with original  maturities of 90
       days or less.

       (b)NET REVENUES

       Revenues from the sale of hearing  instrument  products are recognized at
       the  time of  delivery.  Revenues  from the  provision  of  hearing  care
       diagnostic  services are  recognized  at the time that such  services are
       performed.

       (c)INVENTORY

       Inventory  is stated at the lower of cost,  determined  on the  first-in,
       first-out  method,  or  market  value.   Inventory  consists  of  hearing
       instruments  and  batteries,  which have been  purchased from vendors for
       resale to customers.

       (d)EQUIPMENT AND FIXTURES

       Equipment and fixtures are stated at cost less  accumulated  depreciation
       and  amortization.   Additions  and  betterments  are  capitalized,   and
       maintenance  and repairs are charged to current  operations  as incurred.
       The cost of assets  retired  or  otherwise  disposed  of and the  related
       accumulated  depreciation and amortization are removed from the accounts,
       and  the  gain  or loss on such  dispositions  is  reflected  in  current
       operations.  Amortization  of leasehold  improvements  is provided on the
       straight-line method over the term of the lease or estimated useful lives
       of the  assets,  whichever  is  less.  Depreciation  is  provided  on the
       straight-line method. Estimated useful lives of the assets are:

       Professional equipment                                 7 years
       Furniture and fixtures                                 5 years
       Office equipment                                       5 years
       Leasehold improvements                             1 - 5 years


                                       37
<PAGE>


                         THE MIDWEST DIVISION OF HEARING

                         HEALTH SERVICES, INC. dba SONUS

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)



(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       (e)INCOME TAXES

       The  Company  accounts  for income  taxes  under the asset and  liability
       method.  Under the asset and  liability  method,  deferred tax assets and
       liabilities are recognized for the future tax  consequences  attributable
       to  differences  between  the  financial  statement  carrying  amounts of
       existing  assets  and  liabilities  and  their  respective  tax bases and
       operating  loss and tax  credit  carryforwards.  Deferred  tax assets and
       liabilities  are measured  using  enacted tax rates  expected to apply to
       taxable  income in the years in which  those  temporary  differences  are
       expected to be  recovered  or settled.  The effect on deferred tax assets
       and  liabilities  of a change in tax rates is recognized in income in the
       period that includes the enactment date.

       (f) CONCENTRATIONS OF CREDIT RISK

       Financial   instruments,   which  potentially   subject  the  Company  to
       concentration  of  credit  risk,  consist  principally  of cash and trade
       receivables.  The  Company  places  its cash  with  high  credit  quality
       financial  institutions.  At times such  amounts  may be in excess of the
       FDIC  insurance  limits.  The Company's  trade  accounts  receivable  are
       derived  from  numerous  private  payors,   insurance  carriers,   health
       maintenance  organizations  and  government  agencies.  Concentration  of
       credit risk relating to trade  accounts  receivable is limited due to the
       diversity and number of patients and payors.

       (g)FAIR VALUE OF FINANCIAL INSTRUMENTS

       The  carrying  value  of  financial  instruments  such as cash  and  cash
       equivalents,   trade  receivables,  notes  payable  and  trade  payables,
       approximate their fair value.

       (h)USE OF ESTIMATES

       Management of the Company has made a number of estimates and  assumptions
       relating to the reporting of assets and liabilities and the disclosure of
       contingent  assets and liabilities to prepare these financial  statements
       in conformity  with  generally  accepted  accounting  principles.  Actual
       results could differ from those estimates.

       (i) INTERIM FINANCIAL STATEMENTS

       In the opinion of management,  the interim financial  statements  include
       all  adjustments,   consisting  only  of  normal  recurring  adjustments,
       necessary  for a fair  statement  of the results for the interim  periods
       presented.


                                       38
<PAGE>


                         THE MIDWEST DIVISION OF HEARING

                         HEALTH SERVICES, INC. dba SONUS

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)


(3) EQUIPMENT AND FIXTURES

    Equipment and fixtures consist of the following at June 30, 1996:

     Professional equipment                             $     329,453
     Office equipment                                         194,327
     Furniture and fixtures                                    74,445
     Leasehold improvements                                    64,480
                                                        -------------
                                                              662,705
     Less accumulated depreciation and amortization          (273,182)
                                                        $     389,523
                                                        =============

    Property  and  equipment at June 30, 1996  includes  assets  acquired  under
    capital leases of $23,402, net of accumulated depreciation of $10,029.

    Depreciation  expense  for  fiscal  years  1996 and 1995  was  $108,430  and
    $90,677, respectively.

(4) INCOME TAXES

    The Company is a division  of, and its  operations  are  included in the tax
    return for, Hearing Health  Services,  Inc. Income taxes on the accompanying
    financial  statements are provided on a stand-alone  basis as if the Company
    filed its own tax return.

    The components of the 1996 and 1995 provision (benefit) for income taxes are
    as follows:


                                                Year Ended June 30,
                                         ------------------------------
                                              1996             1995
                                         -------------     ------------

Current:
   Federal                               $      51,492     $     28,456
   State                                         9,666            5,342
                                         -------------     ------------

                                                61,158           33,798
                                         -------------     ------------
Deferred:
   Federal                                     (11,342)           6,083
   State                                        (2,129)           1,143
                                         -------------     ------------
                                               (13,471)           7,226
                                         -------------     ------------

     Total                               $      47,687     $     41,024
                                         =============     ============


                                       39
<PAGE>


                         THE MIDWEST DIVISION OF HEARING

                         HEALTH SERVICES, INC. dba SONUS

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(4) INCOME TAXES (CONTINUED)

The  difference  between the total income tax expense and the income tax expense
computed  using the statutory  federal  income tax rate for the years ended June
30, 1996 and 1995 is as follows:

                                            1996            1995
                                            ----            ----

   Computed tax expense at
     statutory rate                        34.0%           34.0%
   State tax expense, net of
     federal taxes                          4.0%            2.1%
   Nondeductible expenses                   0.6%            4.2%
                                            ---             ---

     Total                                  38.6%           40.3%
                                            ====            ====

The deferred  income tax asset of $39,179 at June 30, 1996 relates  primarily to
certain  reserves  not  currently  deductible  for tax  purposes.  No  valuation
allowance  was  deemed  necessary  and  there  was no  change  in the  valuation
allowance from the prior year. It is more likely than not that the entire amount
of the deferred  tax asset will be realized  due to the taxable  income from the
carryback availability in prior years.

(5)  LEASES

   (a) OPERATING LEASES

       The Company leases office and equipment  under  noncancellable  operating
       leases which require future minimum annual rentals as follows:

       Year ending June 30
          1997                                       $    171,811
          1998                                            152,483
          1999                                            101,023
          2000                                             54,387
          2001                                             50,156
          Thereafter                                       89,090
                                                     ------------
                                                     $    618,950
                                                     ============

       Certain of the leases  contain  renewal  options and  escalation  clauses
       which require  payments of additional  rent to the extent of increases in
       related  operating  costs.  Rent  expense  for  fiscal  1996 and 1995 was
       $195,369 and $194,821, respectively.

   (b) CAPITAL LEASES

       The Company leases certain  professional  equipment  under capital leases
       expiring  through 1996.  Future minimum lease payments related to capital
       leases at June 30, 1996 are as follows:

          Total minimum lease payments
            (payable in fiscal year 1997)            $      9,900
          Amounts representing interest                     1,025
                                                     ------------
          Present value of net minimum
            lease payments                           $      8,875
                                                     ============


                                       40
<PAGE>

                         THE MIDWEST DIVISION OF HEARING

                         HEALTH SERVICES, INC. dba SONUS

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)


(6)  RELATED PARTY TRANSACTIONS

     The Company receives advances to fund operations from related  partnerships
     managed by Foster  Management.  The  balance  due from the Company to these
     partnerships is $277,923 at June 30, 1996.

     The balance of the  related  party  payable  was not assumed by  HealthCare
     Hearing  Clinics,  Inc., in its  acquisition  of the Company  subsequent to
     year-end (see note 8).  Therefore,  the related  party  payable  balance is
     reflected  as  a  non-current  liability  on  the  accompanying   financial
     statements.

     The Company also leases  corporate  office space from a related party under
     an agreement  which expires in February,  2003.  Rent expense  recorded for
     fiscal 1996 was $12,528.

(7)  DEFINED CONTRIBUTION PLAN

     The Company  sponsors a defined  contribution  plan that provides  eligible
     employees  (employees that have been employed for 12 months from their date
     of hire) the opportunity to accumulate funds for their retirement. The plan
     does not require Company  contributions,  nor have any  contributions  been
     made by the Company for the years ended June 30, 1996 and 1995.

(8)  SUBSEQUENT EVENT

     As of October 31,  1996,  the Company was  acquired by  HealthCare  Hearing
     Clinics,  Inc., a Washington  corporation and a wholly-owned  subsidiary of
     HealthCare  Capital  Corp., a corporation  organized  under the laws of the
     Province of Alberta, Canada.



                                       41
<PAGE>


                                   SIGNATURES


          Pursuant to the  requirements of the Securities  Exchange Act of 1934,
the Registrant has duly caused this Amendment No. 1 to its report on Form 10-KSB
for the  fiscal  year  ended  July 31,  1997,  to be signed on its behalf by the
undersigned, therunto duly authorized on October 30, 1997.

                                       HEALTHCARE CAPITAL CORP.

                                       By /s/ Edwin J. Kawasaki
                                          Edwin J. Kasawaki
                                          Vice President-Finance



                                       42
<PAGE>